8 September 1998 GST/HST Interpretation HQR0001130 - Condominium Unit for Mixed, Exempt and Commercial Use

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
K1A 0L5

Dear XXXXX

Thank you for the letter of December 5, 1997 to our XXXXX TSO, which has forwarded to our office for direct reply to you. Your query concerns the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the following hypothetical transactions involving a condominium unit in a rental pool.

Statement of Facts

In your words, the hypothetical facts are :

1. An individual owns a condominium unit in a resort location.

2. The unit is in a rental pool which encompasses most of the units in the complex.

3. The individual registered when he acquired the unit and claimed full input tax credits related to the purchase.

4. The resort has two fairly distinct seasons. From December 1 to April 30, 90% or more of the rentals in the pool are for short term accommodation. From May 1 to November 30, many units are rented on a long-term basis.

Interpretation Requested

Your interpretation, based on your reading of our Departmental guide "Information for Providers of Accommodation and Meeting Facilities", is as follows:

1. The unit is a residential complex as defined for GST/HST purposes, from May 1 to November 30 but it is not a residential complex for the period from December 1 to April 30. Accordingly rentals during the period from December 1 to April 30 would be taxable and rentals during the period May 1 to November 30 would be exempt from GST.

2. The change in use rules under section 207 of the Excise Tax Act (the Act) will not apply in this circumstance.

Interpretation Given

Based on the information provided our interpretation is as follows:

1. Your client, with your assistance, may determine himself whether the subject building is considered a hotel throughout the year, by following the following steps described in our Policy Paper P-099 "The Meaning of Hotel, Motel, (...)". In the event it is considered to be a hotel, he may determine whether or not it is a residential complex by application of Policy Paper P-053 "Application of "All or Substantially All" to Residential Complexes".

You have apparently looked at the criteria summarized in the above mentioned Guide and found that the unit was not a residential complex in the winter and a residential complex during the rest of the year. However, this conclusion should not be reached until the 90% test is applied (please see P-053).

As stated in P-099, it is the Department's position that generally the guidelines should be present throughout the year in order that the property qualify as a hotel. Once this determination has been made, the owner of the condominium unit may choose either the revenue method or the room supply method (please see P-053) to determine whether his unit qualifies as a residential complex for the entire year. Sometimes, the calculations using the revenue method would show that 90% or more of revenues come from short term rentals (less than 60 days) for the year (ski resorts, for example), while the computations under the room rental method would show that less than 90% of the room-night rentals are short term for the year. Therefore, depending on the method the condominium unit owner uses, the result of the determination could be a residential complex or a hotel which is not a residential complex.

The tax status of the room rentals is provided below in sections 2 and 3.

2. A supply of the unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual is exempt from GST/HST under paragraph 6(b) of Part I of Schedule V to the Act if the consideration for the supply does not exceed $20 for each day of occupancy, regardless of the period of the arrangement. On the other hand, such a supply would be subject to GST/HST if the period were less than one month and the consideration exceeded $20 for each day of occupancy, as it would not fall within the ambit of any exempting provision of the Act.

3. If the condominium unit is determined to be a residential complex throughout the year, a supply of the unit by way of lease, licence or similar arrangement for a period of at least one month for the purpose of its occupancy as a place of residence or lodging by an individual is exempt from GST/HST under paragraph 6(a) of Part I of Schedule V to the Act.

4. Where the use of the unit in commercial activities is less than 90% of the total use, the registrant unit owner may claim proportional input tax credits (ITCs) with respect to the acquisition, improvements, and on-going expenses related to the unit, pursuant to subsection 169(1) of the Act, based on the commercial use.

Where substantially all (90% or more) of the use of the unit is in the course of commercial activities, all the use is deemed to be in the course of commercial activities, pursuant to subsection 141(1), and full ITCs would be allowed. Full ITCs, as stated in the hypothetical facts, would not have been allowed by the Department unless subsection 141(1) is met.

5. In this case where the business is seasonal, it would be appropriate to use the period of a year to calculate the extent of commercial use and accordingly, the Department will not apply the change-in-use rules under section 207 of the Act to the individual owner of the condominium unit, provided the extent of the change-in-use over the course of each year does not exceed 10% of the total use on a cumulative basis.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9587.

Yours truly,

Bao Tran
Real Property Unit
Financial Institutions & Real Property Division
GST/HST Rulings and Interpretations Directorate

c.c.:      XXXXX